Portfolio balance effects and the Federal Reserve’s large-scale asset purchases
Abstract
Purpose
Whereas much of previous literature focuses upon the impact on yields from the Federal Reserve’s large-scale asset purchases (LSAPs), the purpose of this paper is to study the changes to expected returns.
Design/methodology/approach
This empirical investigation offers support for changes to risk premia coincident with LSAPs.
Findings
For both equity and bonds, the authors find evidence for supply/demand LSAPs effects; the equity effects are consistent with a substitution effect from bonds to equities, whereas the bond effects appear to be an anomaly.
Originality/value
The findings represent new insight for weighing the efficacy and identifying the scope of LSAPs.
Keywords
Acknowledgements
The authors thank Warren Bailey, John Cochrane, Darrell Duffie, Antti Ilmanen, Luis Viceira, the participants of the Syracuse University Whitman School of Management Finance Seminar and the Worcester Polytechnic Institute Financial Mathematics/Stochastics seminar for helpful comments and suggestions.
Citation
Emmerling, T., Jarrow, R. and Yildirim, Y. (2018), "Portfolio balance effects and the Federal Reserve’s large-scale asset purchases", Studies in Economics and Finance, Vol. 35 No. 1, pp. 2-24. https://doi.org/10.1108/SEF-10-2017-0284
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited